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Refinancing: Why you need to ignore the interest rate.

When counseling my clients on refinances, the objection I hear most often is regarding their current rate. They don't want to take their 4% rate, refinance, and then end up with a 5% rate. This objection doesn't hold any water and doesn't make any sense. In this article, I'm going to go over the reason why, and, show you how to analyze what's important, the bigger picture, of refinancing scenarios.

First, let's do a little test. Open up your wallet and take a look at your credit cards. What's the interest rate on those cards?

Let's do one more test. What is the interest rate on your car loan? The answer you're likely saying out loud at the moment is I don't know, or, probably between this and that rate. Why is it that you don't know or aren't sure? The answer is simple:

You don't care what those interest rates are because what matters to you most is that you have a small monthly payment on that bill.

So what does this little test prove? It shows that the key here is that interest rate is irrelevant..., what's important to you is the monthly payments.

The old way of thinking was that one should not refinance unless you were lowering your interest rate. Although that did work for a while, the fact of the matter is the economy has improved, interest rates have risen, and therefore this opportunity rarely presents itself these days.

When I work with my clients on a refinance what I'm looking for is how much I can save them each month. Just about everyone is sitting on quite a bit of home equity right now. If you can use that equity to pay off and consolidate some of your monthly bills, it doesn't make sense not to.

Last week I closed a refinance loan for a repeat client. We paid off two cars and four credit card accounts, and all six accounts had rather large monthly payments. The result was by using some of their home equity they are now minus those six accounts and have saved the $2000/month they were paying out for those payments. That's Two Thousand dollars they no longer have to fit into their budget, that's a HUGE amount!

If you're thinking about refinancing, remember that interest rate means nothing. Getting rid of monthly payments is the key. How much would you like to save each month?

If you have questions about any part of the mortgage process, feel free to contact me. I'd be happy to help!